MW Stablecoin's promoters want you using it like cash. What could possibly go wrong?

By Rashad Ahmed

Stablecoin could become mainstream digital money - or a risky, leveraged speculation

For widespread stablecoin adoption, two things must happen: Merchants must accept stablecoins and consumers must be willing to hold them.

In July, Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins Act, better known as the GENIUS Act, which has introduced a regulatory framework for U.S. dollar $(USD)$ DXY payment stablecoins. Some analysts predict a multi-trillion-dollar stablecoin market by 2030, up from roughly $300 billion worth of USD stablecoins in circulation today.

But stablecoin's future might hinge on whether it becomes mainstream digital money for low-cost payments or a tool for a growing universe of risky leveraged finance.

For widespread stablecoin adoption, two things must happen: Merchants must accept stablecoins and consumers must be willing to hold them. On the merchant side, the value proposition is obvious. Credit-card transactions are costly, with each swipe carrying 2% to 3% interchange fees. Stablecoin payments promise to be cheaper and faster, saving retailers money.

For consumers, however, the incentives look weaker. Credit cards offer rich rewards programs, while deposits and money-market funds pay interest. By contrast, the GENIUS Act explicitly prohibits stablecoins from paying interest.

This creates a dilemma for stablecoin issuers: how to encourage consumers to switch from cards and deposits to stablecoins. And still, unless incentives are directly tied to spending (for example, like credit-card points), stablecoins might grow in market value but fail to gain traction as a payment tool.

In some cases, incentives designed to drive adoption could even push stablecoins into riskier territory, encouraging people to treat them more like speculative assets than money. New research from the Andersen Institute for Finance and Economics analyzes how the stablecoin ecosystem engineers these incentives for holders.

Let's look at how this works. Some stablecoin issuers partner with asset managers to offer instant convertibility between stablecoins and yield-bearing tokenized assets such as tokenized U.S. Treasurys and money-market funds. In principle, this lets holders reap the benefits of yield without compromising the payment function of stablecoins. Issuers can also work with exchanges and other platforms to offer yield on stablecoins, albeit indirectly, effectively circumventing the GENIUS Act prohibition on interest.

In late September, Coinbase Global (COIN) launched an on-chain lending program for stablecoin holders, offering yields of up to 10.8% annually. The program connects stablecoin holders with borrowers on decentralized finance (DeFi) platforms, while Coinbase provides a simple, centralized interface that brings DeFi into the mainstream. Within two weeks, more than $200 million worth of stablecoins had been lent through the program.

The yields are eye-catching: more than what's available from Treasurys or money market funds, well above most bank deposit rates and even more attractive than typical credit-card rewards. The offer is clearly enticing for consumers, but it also raises key questions. Does the lure of high yield reduce consumer incentives to use stablecoins for payment purposes? Why are the yields so high?

What risks are stablecoin holders actually taking?

When stablecoins are deposited into Coinbase's lending program, they are routed to Morpho, a DeFi platform where borrowers post cryptocurrency collateral in order to borrow stablecoins. Because crypto prices are highly volatile, borrowers must overcollateralize (for example, posting $120 in bitcoin to borrow $100 in USDC). The borrowed stablecoins are then often used to purchase additional cryptocurrencies.

In many cases, those newly purchased assets are also pledged as collateral to borrow even more stablecoins, creating a recursive cycle of leverage that is at risk of unwinding under a sharp drop in crypto prices. The crypto selloff on Oct. 10 is a prime example, with record amounts of leveraged positions liquidated. Economically, this mechanism is not unlike other repo financing markets with risky underlying collateral, such as equites or mortgage-backed securities.

While this system is designed to be secure with ample collateral backing each loan, it is not risk-free. Collateral is liquidated if prices fall, but crypto markets can move faster than liquidation mechanisms, creating "gap risk" that could leave stablecoin lenders exposed. On top of market risk, participating stablecoin holders also face cyber and smart contract risks tied to the DeFi protocol itself, as well as the operational risks of Coinbase and the stablecoin issuer.

Attention-grabbing high yields may well draw consumers into stablecoins, especially if the risks behind those yields are poorly understood. Yet these same incentives may undermine the very purpose of payment stablecoins. If holding and lending stablecoins is more valuable than spending them, they risk becoming viewed not as digital cash, but as another speculative financial asset.

Rashad Ahmed is an economist at the Andersen Institute for Finance & Economics.

More: This 'safe' cryptocurrency promises stability - but its claim is shaky

Also read: Stablecoins aren't the threat to your money that the banking industry would have you believe

-Rashad Ahmed

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November 06, 2025 08:20 ET (13:20 GMT)

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